Agriculture’s water economy has demonstrated growing signs of strain. Recent and persistent extreme weather-related events have highlighted the vulnerability of food and agricultural production to substantial variations in water availability.

Consistent water availability is critical to agricultural production everywhere, and intensifying scarcity presents global agriculture with a formidable long-term challenge.

Water availability is crucial for emerging markets such as Asia and Africa—the latter is expected to be the largest food market in the next 30 years, with a population growth of 50 percent, said Mark Rosegrant.

Rosegrant, director of the Environment and Production Technology Division at the International Food Policy Research Institute, was one of several presenters at the 2016 Agricultural Symposium, “Agriculture’s Water Economy,” which was in July at the Kansas City Fed. The symposium explored the dynamic link between agriculture and water, the role of markets and institutions, and the path forward.

Rosegrant said this dynamic link is strongest in poor countries with high human water stress and high dependence on agriculture. He thinks the answers to future agricultural water demand, especially in underdeveloped countries, are investment and improvement in crop breeding—getting more yield with less water—and changes in water policies, which he says could increase the food supply by 10 percent.

Although Kenneth Cassman agrees with Rosegrant’s assessment, he says 31 percent of total global production of major cereal crops comes from countries with decreasing or stagnant yield rates.

“Something humans can’t affect is how much sun or rainfall a segment of farmland will receive,” he said.

Even though improvements in pest management, crop productivity, fertilizers and irrigation have produced higher yields, the most significant agricultural technology enhancements in the last 15 years are precision planters and harvesting technology, said Cassman, who is an emeritus professor of agronomy at the University of Nebraska.

“We’ve got to accelerate yield growth rates while at the same time protect the environment,” he said. “It’s important that we do this in order to sustain food demand.”

The challenge is how much food demand will increase and how much strain the demand will have on water, said Patrick Westhoff, professor and director of the Food and Agricultural Policy Research Institute, University of Missouri.

“There’s a lot of disagreement on that issue,” he said. “I don’t even know what food demand will be in 2025.”

If data gives any indication, the world population increased 35 percent in the last 30 years and food production increased at almost the same rate. But most of the increase in production went into biofuels and livestock feed.

“If you took out China and the U.S. use of biofuels and their use of grains for other than human consumption, production would be the same as in 1980,” Westoff said.

The question remains of how to feed a growing, hungry world while increasing food production in the midst of global climate change, which affects soil fertility and the
water supply.

Christopher Hartley, deputy director and senior environmental markets analyst for the U.S. Department of Agriculture, says nearly 56 million acres of farmland are irrigated in the United States, mainly in the western part of the country. As a result of climate change and water scarcity, the rate of crop yield improvements in the United States are expected to decrease by 2020, he said. Better water conservation and sustainability practices will change the marketplace, especially the price of food.  But how much are consumers willing to pay for sustainably grown food? Hartley asked.

This is a question not only for producers and consumers, but for all entities involved in global economics, said Guillaume Gruere, senior policy analyst, Organization for Economic Cooperation and Development.

“Policies must look at what is being done already to reach sustainable goals and make improvements that address the need for more agriculture production and water scarcity,” he said.  The problem, however, is that many policies are not compatible with sustainable goals.

“This is not just a U.S. problem, but a global issue that must take the cooperation of the agricultural industry, governments, both national and local, and other elements to help move the world to a more sustainable outcome,” Gruere said. 

And this is where the tension between agriculture and environment, production and demand increases.

Hartley says that the federal government has been given the responsibility for resource protection, and the Clean Air, Clean Water, and Endangered Species acts have managed and changed accepted resource practices over time, but they’re not enough to prepare us for the future.

It’s going to take a combination of policies and practices that address issues such as water scarcity, water rights, farmland availability, soil fertility, production outpacing demand and food waste.

“This may require changes in human consumption, which campaigns to change it so far have not been successful,” Cassman said. “It will also require us to change the way we use water, which is not an easy task.”

Bradley Udall, a senior water and climate research scientist at the University of Colorado, says there is no greater impact on water resources than climate change. As the agricultural industry proceeds into the 21st century, prior records on water tables, resources and other information become less useful due to climate change.

“Climate change is occurring; we’ve already seen it,” he said. “More floods, droughts, snow pack melts, changes in water resources, the past is no longer a guide to our future.”

So water management and improved farming practices become a top priority, he said.

Ellen Hanak, director of the Water Policy Center, Public Policy Institute of California, says policies that focus on specific water uses, such as consumptive versus nonconsumptive, will help manage water allocation and usage issues. Scientific data, however, will have to help craft these policies.

“We have great data on withdrawals, but not on consumption,” she said. “We have to make institutional changes that will help create better policies.”

This is especially important as farmland conditions change, she added.

“Areas that are not used to droughts, don’t have the right policies in place,” she said. “In the western portion of the country, we’re used to dealing with droughts so our policies reflect it.”

That’s why policies must not only address current conditions but future changes in the environment, said Les Lampe, former vice president and director of water resources, Black & Veatch. Policies, however, are not enough. Agricultural and water use practices must change to align with future conditions.

“Agriculture has a unique role in finding a solution,” he said.

To meet future water demand, the agricultural industry must invest more capital in intensive irrigation technologies, improve seed yields, and implement more precision farming to optimize the use of water and other inputs tailored to local conditions.

“We must improve practices if we are going to meet future needs,” Lampe said.

Technological innovations and scientific data are playing a larger role in helping the global agricultural industry make improvements in farming, such as combating drought, improving planting cycles, and water conservation, said Qiuqiong Huang, associate professor of agricultural economics at the University of Arkansas.

Some of that technological investment is occurring in Silicon Valley. Engineers are developing software applications that tell farmers where the best soil conditions are located and how much water to use according to crop and season. Some applications also will help farmers evaluate how future climate conditions will affect particular pieces of land.

“Bits and bytes are going to solve the problems of bushels,” said John Hamer, managing director, Monsanto Growth Ventures.

“The answer to water scarcity is getting more crop yield based on the water available without overuse, without causing water scarcity,” he added.

Nathan Kauffman, Kansas City Fed Omaha branch executive and economist, moderates a panel discussion during the Agricultural Symposium in July at the Kansas City Fed. Kauffman leads the Tenth District's agricultural research efforts and plans the annual symposium.

Technological improvements can help, however, water application, especially as more areas combat drought, is a current issue that has placed great pressure on the irrigation industry, said Robert Meaney, former chairman-international, Valmont Industries Inc.

“Climate changes have pushed irrigation use up by 5 percent a year,” he said.

Making affordable water application improvements is particularly important for emerging markets.

“Irrigation improvements in third-world countries can allow farmers to triple or quadruple their crop yields and introduces effective water management,” he said.

Bonnie Colby, professor of agricultural and resource economics at the University of Arizona, says, however, that much of the increase in water use, especially in industrialized nations, involves manufacturing and other services unrelated to farming.

That’s why as climate conditions change, access to water is critical for agricultural and industrial markets around the world, said Nicholas Brozovic, director of policy, Water for Food Institute, University of Nebraska.

“And that’s why water markets are part of a larger conversation about water management,” he said.

Mike Young, professor and chair, Water and Environmental Policy, University of Adelaide, Australia, says the answer isn’t in the formation of water markets.

“You don’t talk about establishing markets, you set up allocations and markets will come,” he said.

Young says the agricultural industry and governments must focus on water trading in order to meet future needs. He says this can be done through the establishment of two systems—one involves water volumes and the other focuses on the allocation of water. To make these systems work, there will have to be institutional investment and changes to the current system.

“In the U.S., law firms do trades, which take five years to complete; when it should take 40 minutes,” he said.

“Why don’t we manage water like we manage money in a bank? Make it trustworthy and easy for everyone to participate,” he added.

Creating this system will provide equity among water consumers, and at the same time, make sure water is being used productively.

Udall, however, says there is no guarantee in water systems.

“You can’t guarantee when it’s going to rain, and you can’t guarantee water supplies, but you can manage what you have.”

Richard Sandor, chairman and chief executive officer, Environmental Financial Products, agrees that water must be managed, but building a new system is unnecessary when a commodities market already exits. The establishment of a low-cost market and delivery system within the greater commodities market will provide water management and create equity and price transparency.

“I believe you’ll see water index trading in the United States in the next few years,”
he said.

Colby says we need to consider disparities and access to water that occurs throughout different cultures, not just in the United States. The current system of paying for water may no longer be practical, especially when there is an emerging need for a global water market.

“We can do better in creating regional economies that deal with water trading, water rights and water scarcity,” Colby said.

Young says to use caution when establishing any system because water can have negative liabilities, such as flooding and improper water reclamations.

“Who will be liable for flooding” within the system? he asked.

Tom Iseman, deputy assistant secretary for water and science, U.S. Department of the Interior, says whether it’s the commodities market or the development of a new water trading system, there is a clear benefit in managing water—it provides flexibility during drought conditions and can allocate water to more productive uses.

“In America we will see incremental change instead of wholesale change ... but there is a definite need for markets that support local innovations in water management,” Iseman said. 

Further Resources

To learn more about the 2016 Agricultural Symposium presenters and their presentations, visit External Linkhere. The five main papers presented at the Symposium will be published in a special edition of the Kansas City Fed’s Economic Review, which will be available here.